President Donald Trump will outline major tax cuts for Americans Wednesday that could take trillions of dollars away from the federal government over the next decade and lump it on to the national debt.
The president will be "pretty broad in the principles" of tax reform that he lays out with more details coming in the summer, his director of legislative affairs, Marc Short, told the Associated Press. But what it boils down to is major hikes in the amount people can deduct from their taxes and large cuts for small businesses and corporations.
Currently, individual Americans can claim a $6,300 deduction on their taxable income. That number rises to $12,600 for married couples who file their taxes together. Under Trump’s proposal, those numbers will be significantly higher, according to two people briefed on the plan who spoke anonymously to the Washington Post ahead of Trump’s announcement.
The tax plan Trump touted during his election campaign laid out the most significant tax cuts for Americans since Ronald Reagan introduced measures in the 1980s. Trump proposed to raise deductions from $6,300 to $15,000 for individual filers and from $12,600 to $30,000 for married couples filing jointly.
Under the new rules, an individual making $35,000 each year would be able to remove $15,000 from their taxable income through the deduction, leaving just $20,000 for the government to tax.
On top of these tax cuts, Trump is expected to outline his proposal to lower the corporate tax rate from 35 percent to 15 percent. And he will seek to reclassify small, individually-owned businesses that currently file their taxes under the individual code so they are under the corporate tax code instead.
This would affect a broad spectrum of businesses, not just mom-and-pop stores, but large family-owned real estate firms such as his and hedge funds too.
Trump’s plan will be laid out as a series of bullet points on Wednesday, Short said, and the president will ask Congress for ideas on how to improve it over the coming weeks. Specific details of the plan are likely to come together in the coming months, and Republicans are expected to use the legislative process of “reconciliation,” which would give them a filibuster-proof shot at getting any tax bill through the Senate.
The process has been used by presidents from Bill Clinton to George W. Bush and Ronald Reagan to pass tax cuts in the past.
Republicans denounced former President Barack Obama’s contributions to swelling the national debt, which today stands at $20 trillion. But what Trump is proposing could raise that figure by an extra $6 trillion over the next decade, a Congressional Budget Office report warned early this year. Trump also has his eye set on a $1 trillion infrastructure program that he has promised will boost American businesses.
Some Republicans believe the costs to the government have been overestimated this is a bad thing. After leaving a briefing on the tax cuts given by Trump’s staff to Republican leaders on Capitol Hill Tuesday, Senator Orrin Hatch, who chairs the Committee on Finance, said that he’s “ not convinced that cutting taxes is necessarily going to blow a hole in the deficit."
The Congressional Joint Committee on Taxation said Tuesday that a big cut in corporate taxes would add to the government deficit long-term . But Hatch told reporters he believes the cuts "could stimulate the economy and get the economy moving.” Whether “15 percent is the right figure or not, that's a matter to be determined," he added.
A low corporate rate would discourage corporations from moving their operations and headquarters overseas to low-tax countries, wrote Leonard E. Burman, a fellow at the nonpartisan Tax Policy Center, in a blog post Tuesday.
But “barring additional reforms,” Burman wrote, Trump’s tax cuts “would also create a gigantic loophole for high-income individuals,” who could squirrel away their wealth in their businesses through the proposed changes to small business tax reform and pass it on as an untaxed asset to their kids.
Trump’s plan would need to be paired with an individual-level tax on dividends from the company and “any increase in the net value of their corporate shares” for it to work, Burman wrote. Otherwise, he could be creating “a half-baked tax shelter generator” for the wealthy.